Diana Liebmann in Law360: Texas PUC Vote Signals Move Toward Power Subsidies

10/28/2013

Following an acrimonious debate, the Texas Public Utility Commission on Friday said the state should adopt a mandatory reserve margin for its electrical supply, a move viewed by regulatory attorneys as the first step toward creating a controversial capacity market that would subsidize power generation.

The 2-1 vote by commissioners follows more than two years of debate about how to ensure Texas can avoid rolling power outages as its population booms and electricity demands grow. The overarching question is whether the state needs to intervene and provide incentives to encourage investment in new power plants and expanded electricity generation capacity through an estimated $4 billion annual subsidy, or if the free market can accomplish that goal on its own.

The PUC is waiting on two reports analyzing the state’s power needs and the economics of how to maintain a reliable energy supply, due by the end of January, before it would actually set the reserve percentage or make final decisions about how to meet that reserve. But by taking the first step to require the state have not just a target, but a mandatory reserve, the PUC is signaling it doesn’t trust current market conditions will guarantee Texas has enough power supply down the road, attorneys say.

“There’s a recognition we need to have an insurance backstop,” Diana Liebmann of Haynes and Boone, LLP said. “Having a mandatory reserve margin at least indicates we’re not just going to leave it up to market forces in an energy-only market to plan for capacity.”

Excerpted from Law360, October 28, 2013. To view full article, click here (subscription required).

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